Mubadala and Ipic merger has a clear sense of purpose with precedent to match

The plan to merge Ipic and Mubadala, which comes less than two weeks after similar talks between First Gulf Bank and National Bank of Abu Dhabi, demonstrates the Abu Dhabi Government’s determination to restructure the economy amid low oil prices. Yet while the emirate is hardly alone in being affected by lower commodity prices, corporate […]

The plan to merge Ipic and Mubadala, which comes less than two weeks after similar talks between First Gulf Bank and National Bank of Abu Dhabi, demonstrates the Abu Dhabi Government’s determination to restructure the economy amid low oil prices.

Yet while the emirate is hardly alone in being affected by lower commodity prices, corporate lawyers in the region say that similarly massive mergers are unlikely to be seen elsewhere in the UAE or throughout the wider Arabian Gulf.

The merger of the two entities was welcomed by the local legal community.

“It seems to be another example of positive steps being taken to make key Abu Dhabi entities more efficient to enable them to face the challenging times ahead,” said Stephen Forster, the managing partner at the law firm Al Tamimi in Abu Dhabi.

NBAD and FGB confirmed earlier this month that they were discussing a merger to create the Middle East’s largest bank, as both institutions face tighter liquidity in an era of lower oil prices.

Mr Forster noted that such merger deals would be assisted by the expanded and more-detailed provisions on mergers contained in the new Commercial Companies Law, which came into effect last year.

The decision to merge sovereign wealth players such as Ipic and Mubadala is seen as a logical move for the government, with obvious synergies for the two investors’ oil and gas operations.

“Entities such as Ipic and Mubadala have been run independently of one another for some time now, each of them by strong chief executives who have their own particular leadership style, with very little cooperation or coordination between one other,” said Matt Donovan, a partner with Clyde & Co in Dubai.

“In this new climate everyone has to be a lot smarter about how they’re spending their money. It’s good news, and should be well-received internationally as well as domestically.”

Government-led mergers of major Abu Dhabi entities predate the collapse in oil revenue, with the merger of Aldar Properties with its fellow real estate developer Sorouh in 2013.

The creation of flagship large enterprises with regional and international visibility is also a motivating factor for the Government, in addition to streamlining.

“Yes, it’s about cost-saving, but it’s also about creating champion companies for Abu Dhabi and the UAE that have visibility on the international stage,” said a senior official at one of the merging entities.

Such mergers are most likely to be confined to Abu Dhabi for the near future.

“There has been lots of talk about consolidation and cost cutting because of lower oil revenue, but so far it’s been confined to Abu Dhabi and doesn’t yet seem to be a factor in Dubai,” said Mazen Boustany, a partner with Baker & McKenzie Habib Al Mulla.

The same is likely to apply for Saudi Arabia, in spite of the kingdom’s economy coming under greater pressure than in Abu Dhabi because of lower oil revenue.

“The mergers in Abu Dhabi are about streamlining operations to achieve savings, particularly in terms of headcount,” said a Saudi Arabia-based partner at a large western law firm. “If anything you’re more likely to see the opposite tendency here in Saudi Arabia, where you have the prospects of companies being broken up and privatised to offer greater transparency for the sake of international investors.”